THE TAX MAN COMETH: by John Ewing:
Below is a copy of an article I wrote for Truckers Connection on taxes. The tips here may help you in organizing your records. We recommend that you use a Tax Professional who is familiar with the Trucking Industry for doing your taxes.
Well tax time is approaching again and it’s time to dig out the paper bag and get ready for the annual paper chase. Truck drivers, whether they’re owner/operators or company drivers, are subject to special rules and have a number of deductions and allowances available to them. Quite often though these deductions are missed when you do your own taxes or have them done by someone who is not familiar with the trucking industry and its’ special rules. Here we’ll take a look at some of those special rules and look at some of the most commonly overlooked deductions.
The first and most important thing to consider is records. Without supporting records you will not be able to take many of the deductions you might otherwise be entitled to. It is important to keep receipts for everything you buy for use in, on or around your truck. Your log books are also important records for the tax man. In the event of an audit your log book establishes how many days you were on the road during the year and is considered proof of your actual days on the road. You can keep your records in a journal, a computer (see sidebar) or on a scratch pad, but if you’re called in for an audit you need to have receipts and/or written records showing the item and what the expense was for.
TRAVEL EXPENSES - according to the IRS travel expenses are ordinary and necessary expenses that you pay while traveling away from home for your business or profession. An ordinary expense is one that is common and accepted in your field of business, trade or profession. A necessary expense is one that is helpful and appropriate to your business. An expense does not have to be indispensable to be considered necessary. However, you cannot deduct expenses to the extent they are lavish or extravagant.@
Anything you spend on, in or around the truck would normally be considered a deduction. For example:
Antennas, batteries (for the flashlight as well as the truck), binders, blankets, boots, briefcase, calculator, CB repairs, CB’s, cellular phone, chains, checking account fees (atm fees for the extra charge because you’re away from your home bank), chrome things, cleaning supplies, com check charges, coveralls, Federal Express (UPS, Postage for business mail or other mail which is necessary because of your absence from home), flashlights, gloves, hand tools, ice box, insurance, laundry, legal fees (not fines, but the cost for legal fees to defend yourself and court costs), lights, log books, luggage, lumpers, maps, motels, office supplies, pens, permits, pillows, radio, repairs, ropes & equipment, safety equipment, safety glasses, scales, scanner, sheets, showers, signs, smelly stuff, special clothes, special equipment, stapler, staples, stereo, storage, sun glasses, tarps, taxi, tires, tolls, tool boxes, truck organizations, truck parking, truck wash, truckers newspapers & magazines, TV, and uniforms.
This list is by no means complete but it should give you the idea. If you’re not sure about a particular item check with the IRS on it, especially if it’s a large expense. If you take an expense and it’s later ruled invalid you can be charged penalties for any additional tax now due from the time the tax would have originally been due. There are also a few other items worthy of more specific mention.
MEALS - The Standard Meal Allowance (per diem) is different for truckers than it is for other people. Taking the standard deduction relieves you of the responsibility of keeping records and receipts for all your meals, and most will find that the $36.00/day allowance will cover your actual expenses. There are special rules that apply to the meal deduction that you should also be aware of. If you get home, or pass by the house during the day you will have to pro-rate your deduction for that day. For example, you’re out on the road and decide to pass by the house to collect your mail and check out the homestead. You arrive home at 6:00 am and stay for 3 hours. Divide the day up into 4 6 hour periods (Note: IRS rules state you can use any period that you consistently apply and that is in accordance with reasonable business practice.), so you would have the following 4 periods in the day -
Midnight to 6 am
6 am to Noon
Noon to 6 pm
6 pm to Midnight
Since you arrived home at 6 am and stayed till 9 am you would be eligible for the standard deduction for the other 3 periods which is $27.00 ($36.00 * .75) for that day. If you arrived home at 10 am and stayed till 1 pm then you would be eligible for 2 periods or 50% of the daily deduction. This same system would also apply to days when you arrived home for a few days off or left home to go back out onto the road. In the event of an audit your log book would be used to validate your time at home and on the road, so hang on to those old log books.
TAX HOME - in order to claim travel expenses you must have a tax home. This is the place where you live when you are not on the road. A PO Box is not a tax home! If you live in your truck and do not have a physical street address then you cannot claim any travel expenses. In addition to a physical address, you also must have living expenses at your main home that you duplicate because your business requires you to be away from that home. Using your parents or another relative or friends address as your tax home is only valid if you pay that person an amount equal to the going rate for a room in the area and regularly use that room when you are off duty as your residence. In the event of an audit you will have to substantiate these expenses to prove that you have an actual tax home. If you can’t you will probably lose all your deductions for travel expenses and will then be subject for fines and penalties for the amount of the tax increase.
RECEIPTS - it is not always possible to get a receipt for cash which you spend on the road and the IRS realizes this. They will allow you to present handwritten receipts for these expenses as long as they are not excessive and are normal and expected expenses for your business. A few examples are laundry, truck washes at a drive thru type wash bay, and pay phones when used for business calls (calls home to chat with the family are not business calls and are not deductible!). In these cases you should write on a piece of paper the date, the amount and what it was for, or in the case of phone calls who it was to. This hand written receipt is considered proof of the expense by the IRS.
LUMPERS - if you use lumpers and are not reimbursed by the company for the amount you pay the lumper, or are only reimbursed for part of the cost of the lumper you can deduct the amount you paid or the difference if you were partially reimbursed. Get a receipt from the lumper which includes his name, address, social security number, the company at which you used his services, the date and the total amount you paid him.
Remember, records are the key to getting all the deductions you are entitled to and in the event of an audit are required to back up the deductions you claimed. Get receipts for everything when you are on the road and if no receipt is available make your own receipt for the expense. Keep your receipts together and record them somewhere, in a journal, a notebook or a computer so you can total them up at the end of the year.